A thoughtful client expressed concern recently because of a CNNMoney article titled “‘Extreme Fear’ is Back for the Stock Market”.
To which my initial response was: So What?
I took the time to read the article, which informed investors that the CNNMoney’s proprietary “Fear & Greed Index” hit record lows on July 27: 7 on a scale of 1-100 (with 1 being the most fearful and 100 being the greediest). Such a reading, according to the article, indicated extreme caution on the part of investors because of a range of financial factors. Clearly, it was an attempt to stoke fears that investors may already have regarding short-term market performance.
I don’t even want to get into figuring out how the index worked, or even whether it had any valid relationship to whether investors were experiencing “Extreme Fear” or not. These kinds of indexes aren’t relevant to investing.
I found it significant that historical charts of the Index were not provided. I suspect this was because CNNMoney didn’t want people to see whether the CNNMoney had any correlation with actual market performance. Information on the CNNMoney website did provide a couple of tidbits:
- The index dropped to 0 in mid-October 2014, at which time the total stock market, measured by Vanguard’s Total Stock Market Index ETF (VTI), had dropped less than 6%--not even a correction—since its prior peak in September. The article didn’t point out, however, that since October 15, 2015, VTI was up over 12%.
- The Index hit a “three-year low” on September 17, 2008, when it hit 12, and then increased to 28 by the time the market bottomed out (March 9, 2009). As we know, since that low, VTI has increased over 220% through July 27, 2015.
So, if I was a betting man, after reading this article (which was written to make the fearful even more fearful so that if, by chance—and it would only be by chance—the market tumbled they could say “I Told You So”) I would say that now is the time to put everything into stocks. But I’m not a betting man—I’m a professional advisor helping my clients reach important lifetime goals. Our firm helps our clients to ignore the noise, and to avoid damaging investor behavior (such as paying attention to CNNMoney).
So, my final response is the same as my initial response: So What?